A donor is not entitled to an income tax deduction for a charitable contribution to a foreign charity.  See IRC Sec. 170(c)(2)(A).  However, a donor may get an income tax deduction for a charitable contribution to a domestic charity even though all, or some portion, of the donated funds may be used in foreign countries for charitable or educational purposes.  26 CFR 1.170A-8(a)(1).  See Bilingual Montessori School of Paris, Inc., 75 T.C. 480 (1980).  Whather such contribution will be deductible for income tax purposes may depend on whether it violates the earmarking or conduit restrictions.

Domestic charitable organizations may fund a foreign charitable organization and/or individual when:
1.  the domestic organization’s purpose can be furthered by granting funds to a foreign entity;
2.  the domestic organization has reviewed and approved of the foreign entity’s purposes; and
3.  the grants are paid from general funds rather than from special funds solicited on behalf of the foreign organization.  See Rev. Rul. 63-252.

Donations made to domestic charitable organizations organized or operated solely to solicit funds on behalf of preexisting foreign entites and that are effectively agents or conduit organizations for the foreign entities are not deductible for income tax purposes.  See Cases 1-3 in Rev. Rul. 63-252. 

Donations made to domestic charitable organizations that solicit funds without any express understanding that the donations will be forwarded to foreign entities and that exercise discretion and control over the funds solicited from U.S. sources are deductible for income tax purposes.  See Cases 4-5 in Rev. Rul. 63-252.  In order to adequately exercise control over the forwarded funds, the domestic organization may need to retain full control of the donated funds to ensure that they will be used to carry out it’s own charitable purposes.  Contributions to a domestic charitable organization solicited for a specific project of a foreign organization are deductible where the domestic organization has reviewed and approved in advance the project as being in furtherance of its own exempt purposes and has control and discretion as to the use of the contributions.  Rev. Rul. 66-79.

An increasingly important aspect of international giving is compliance with counter-terrorism measures.  See The Handbook on Counter-Terrorism Measures:  What U.S. Nonprofits and Grantmakers Need to Know.

For more information:
Domestic Organizations with Foreign Operations, 1983 EO CPE Text
* Principles of International Charity (March 2005)
* Equivalency or Expenditure Responsibility?  A Guide in Plain English
Legal Issues, United States International Grantmaking (many excellent links)
Tax Planning for Cross-Border Philanthropy by U.S. Donors, by Jane Peebles, J.D.

Comments

  1. Bob Glaser says:

    Question: If I form a domestic charity, who purpose is to build facilites in forgein countries, but retain the ownership of the constructed facilities, would this likely be a deductible scenario?

  2. Gene Takagi says:

    A domestic charity may have foreign operations and be eligible to receive deductible contributions. Of course, the first hurdle is whether the organization will qualify for recognition of exempt status as a charitable organization.