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Thursday, April 25, 2024
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GiftLaw Pro |
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GiftLaw Note:
PF, a domestic 501(c)(3) organization, made grants to Foreign Orphanage. For decades, Orphanage was a home for destitute, homeless, impoverished, diseased, and underprivileged children. Orphanage's mission was to provide food, shelter, medical care, and education to its children. Accordingly, Orphanage was recognized as a charitable organization by its country's government.
PF requested a ruling that its grants to Orphanage would be a qualifying distribution under IRC Sec. 4942.
Section 4942 imposes an excise tax on a foundation's undistributed income, which is the difference between a foundation's distributable amount less qualifying distributions. A qualifying distribution is any amount paid to accomplish an exclusively charitable purpose. With respect to foreign charities who do not have a determination letter or ruling from the Service regarding its tax status, Rev. Proc. 92-94 provides a procedure foundations should follow before making grants to the foreign charity. In short, the foundation should obtain a "currently qualified" affidavit from the foreign charity regarding its financial support.
The Service ruled that PF's grants to Orphanage would be qualifying distributions under Sec. 4942, because the grants would be made to an unrelated organization whose purpose was exclusively charitable (i.e. serving the underprivileged). In addition, the Service stated that PF should make reasonable, good faith efforts, in accordance with Rev. Proc. 92-94, that the Orphanage continue to receive its financial support from the public, as defined in Section 509.
Editor's Note: Contributions to foreign charities should be handled with care because not all contributions are treated alike. For example, gifts to foreign charities will not produce an income tax deduction, since foreign charities are not qualified organizations under Sec. 170(c). However, bequests to foreign charities do produce an estate tax deduction under Sec. 2055(a)(2), so long as they are "operated exclusively for religious, charitable, scientific, literary or educational purposes." Reg. 20.2055-1(a)(4) further notes that foreign charities are permissible recipients under Sec. 2055(a). See also Rev. Rul. 74-523 which allowed a distribution to a foreign entity used for exclusively charitable purposes to qualify for an estate tax deduction.
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PF, a domestic 501(c)(3) organization, made grants to Foreign Orphanage. For decades, Orphanage was a home for destitute, homeless, impoverished, diseased, and underprivileged children. Orphanage's mission was to provide food, shelter, medical care, and education to its children. Accordingly, Orphanage was recognized as a charitable organization by its country's government.
PF requested a ruling that its grants to Orphanage would be a qualifying distribution under IRC Sec. 4942.
Section 4942 imposes an excise tax on a foundation's undistributed income, which is the difference between a foundation's distributable amount less qualifying distributions. A qualifying distribution is any amount paid to accomplish an exclusively charitable purpose. With respect to foreign charities who do not have a determination letter or ruling from the Service regarding its tax status, Rev. Proc. 92-94 provides a procedure foundations should follow before making grants to the foreign charity. In short, the foundation should obtain a "currently qualified" affidavit from the foreign charity regarding its financial support.
The Service ruled that PF's grants to Orphanage would be qualifying distributions under Sec. 4942, because the grants would be made to an unrelated organization whose purpose was exclusively charitable (i.e. serving the underprivileged). In addition, the Service stated that PF should make reasonable, good faith efforts, in accordance with Rev. Proc. 92-94, that the Orphanage continue to receive its financial support from the public, as defined in Section 509.
Editor's Note: Contributions to foreign charities should be handled with care because not all contributions are treated alike. For example, gifts to foreign charities will not produce an income tax deduction, since foreign charities are not qualified organizations under Sec. 170(c). However, bequests to foreign charities do produce an estate tax deduction under Sec. 2055(a)(2), so long as they are "operated exclusively for religious, charitable, scientific, literary or educational purposes." Reg. 20.2055-1(a)(4) further notes that foreign charities are permissible recipients under Sec. 2055(a). See also Rev. Rul. 74-523 which allowed a distribution to a foreign entity used for exclusively charitable purposes to qualify for an estate tax deduction.
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