September 24, 2012
Expanding Who Can Make Foreign Charity "Equivalency Determinations" (Proposed Regulations)
The Treasury Department recently issued proposed regulations that expand who is able to make a determination that a foreign organization is the equivalent of a charitable organization (other than a private nonoperating foundation) under U.S. federal tax law. These "equivalency determinations" are important for private foundations seeking to make grants to such organizations because they permit foundations both to avoid the need to exercise expenditure responsibility over these grants (under Code section 4945) and to count such grants toward their minimum required distribution (under Code section 4942). Current regulations require that foundations rely on either an affidavit of the foreign organization or an opinion of counsel (for the foundation or for the grantee). The proposed regulations would expand who can provide such an opinion to any "qualified tax practitioner," which includes not only attorneys but also certified public accountants and enrolled agents, as defined in Treasury Department Circular No. 230. The expansion would not reach foreign counsel, however, unless they are otherwise a qualified tax practitioner. Treasury also stated it is considering whether to place a time limit on how long a foundation may rely on such an opinion, whether the ability to rely on affidavits should be modified, restricted, or eliminated, and whether any further modifications to Revenue Procedure 92-94 are need to take into account changes to the public support test (for avoiding private foundation classification). Until the final regulations are issued, they may be relied upon as of the scheduled date for publication in the Federal Register (today).
While private foundations likely will appreciate the expanded and likely usually lower-cost options for obtaining equivalency determinations, which is one of the reasons Treasury gave for the change, the proposed regulations do not address another frequently raised issue in this area. That issue is the creation of repositories for equivalency determinations so that all private foundations, and indeed all charities, could access and rely on them rather than each grantmaking organization having to obtain its own determination. Most prominently, the Advisory Committee on Tax Exempt and Government Entities ("ACT") recommended that the IRS facilitate the formation of such repositors in its 2009 report. The proposed regulations do not acknowledge this proposal, however, suggesting that at least for the time being it is not an option that Treasury and the IRS are interested in formally facilitating
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