PORTFOLIO

U.S. International Tax Aspects of Charitable Giving and Charitable Operations (Portfolio 6810)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. In this Portfolio, our expert authors discuss the U.S. federal tax issues that apply in three principal situations.

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DESCRIPTION

The U.S. International Tax Aspects of Charitable Giving and Charitable Operations Portfolio discuss the extent to which a charitable contribution made by an individual or corporation may have the effect of reducing the donor's U.S. income tax, estate tax, and/or gift tax; U.S. taxes (primarily excise taxes) that may be imposed on a U.S. or foreign charitable organization with respect to its day-to-day operations; and U.S. taxes (both income taxes and excise taxes) that may be imposed on a U.S. or foreign charity with respect to income that it may realize from its investments.


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AUTHORS

Bloomberg BNA Portfolios are written by leading tax professionals who set the standard as leaders in their fields. The U.S. International Tax Aspects of Charitable Giving and Charitable Operations Portfolio was authored by the following attorneys.  

 

THOMAS S. BISSELL, CPA

Thomas S. Bissell, CPA is a retired tax partner with Coopers & Lybrand LLP (a predecessor firm of PricewaterhouseCoopers LLP) and author of numerous articles in professional tax publications.

 

Credentials / Thomas received his B.A., Harvard College (1964); LL.B., Columbia Law School (1967); LL.M. in Taxation, New York University (1971); Member, New York Bar (Retired Status); Certified Public Accountant, State of Florida; Member, Tax Management Advisory Board — U.S. International; Member, American Bar Association, American Institute of Certified Public Accountants, Florida Institute of CPAs (FICPA), and FICPA International Taxation Committee; former Attorney-Advisor, Office of International Tax Counsel, U.S. Treasury Department, Washington, D.C.


TABLE OF CONTENTS

Portfolio 6810-1st: U.S. International Tax Aspects of Charitable Giving and Charitable Operations

Portfolio Description

Authors

Technical Advisors

Description

Detailed Analysis

I. Introduction

A. The Growing Importance of International Philanthropy

B. Outline of this Portfolio

C. Threshold Concepts

1. Is the Entity an “Exempt Organization” Under § 501(c)(3)?

2. Recognition of Tax-Exempt Status Under § 501(c)(3)

3. Is the Entity a “Private Foundation” or a “Public Charity”?

a. More Restrictive Income Tax Deductions

b. “Excise Tax” on Net Investment Income

c. Excise Taxes (Penalty Taxes) on Prohibited Activities

d. Expenditure Responsibility

e. Annual Reporting to the IRS

f. Special Rules upon Termination of the Organization

4. The 85% Foreign Support Test of § 4948(b)

5. Extra-Territoriality of the Rules in the Code

6. Effect of Tax Treaties

7. Is the Entity a Corporation, a Trust, or Something Else?

II. Recognition of U.S. Tax-Exempt Status

A. Introduction

B. Domestic Organizations

C. Foreign Organizations

1. U.S. Tax Consequences of U.S. Tax Exemption

2. Establishing Exemption for a Foreign Organization Under § 501(c)(3)

D. Contrast Between Domestic and Foreign Organizations

III. Income Tax Treatment of International Charitable Contributions by U.S. Persons

A. Contributions by Individuals

1. Charitable Donee Must Be a Domestic Organization

2. Utilization of a Domestic “Friends Of” Organization

3. Donor-Advised Funds

4. Deduction Under an Income Tax Treaty

a. Canadian Treaty

b. Israeli Treaty

c. Mexican Treaty

d. Requirement of Income Sourced in the Treaty Country

e. Treaty Disclosure Under § 6114

B. Contributions by Domestic Corporations

1. Applicable Rules

2. Deduction Under an Income Tax Treaty

3. Contributions to Foreign Charities by Foreign Branches and Foreign Subsidiaries

4. Deduction Allocation Regulations

C. Contributions by Domestic Non-Grantor Trusts and Estates

1. Applicable Rules

2. Income Tax Treaties

D. Disregarded Entities

IV. Income Tax Treatment of International Charitable Contributions by Non-U.S. Persons

A. Contributions by Nonresident Alien Individuals

1. General Rules

2. Gifts of Appreciated Property

3. Income Tax Treaties

B. Contributions by Foreign Corporations

1. General Rules

2. Gifts of Appreciated Property

3. Income Tax Treaties

C. Contributions by Foreign Non-Grantor Trusts

1. Taxation of the Trust

2. Taxation of U.S. Beneficiaries

D. Contributions by Foreign Estates

1. Taxation of the Estate

2. Taxation of U.S. Beneficiaries

V. Estate and Gift Tax Treatment of International Charitable Bequests and Gifts

A. Bequests by U.S. Citizens and U.S.-Domiciled Aliens

1. General Rules

2. Section 508(d) and the 85% Foreign Support Rule

3. Special Disallowance Rule of § 4948(c)

4. Bequests to Be Used Directly or Indirectly by Foreign Governments

5. Section 2053(d) Election

6. Section 4947(a)(1) Trusts

7. Estate Tax Treaties

B. Bequests by Non-Domiciled Aliens

1. General Rules

2. Possible Denial of Deduction Under § 508(d)

3. Deduction for Bequests to Treaty Country Charities

C. Inter Vivos Gifts by U.S. Citizens and U.S.-Domiciled Aliens

1. General Rules

2. U.S. Donor Who Funds a Foreign Charity

a. General Comments

b. Creation of a Non-§ 501(c)(3) Foreign Entity

3. Gift Tax Treaties

D. Inter Vivos Gifts by Non-Domiciled Aliens

1. General Rules

2. Deduction for Gifts to Treaty Country Charities

VI. U.S. Tax Treatment of a U.S. Charitable Organization

A. General Comments

B. Funding of Foreign Activities and Foreign Organizations

1. Funding by a U.S. Public Charity

2. Funding by a U.S. Private Foundation

a. Expenditure Responsibility Under § 4945

b. “Equivalency Determination” Under Rev. Proc. 92-94

c. Grants to Canadian Charities

d. Grants to Mexican Charities

e. Grants to Individuals for Travel or Study

f. Other Issues

3. Foreign-Source UBTI

4. Section 1441 Withholding on Certain Grants to Foreign Persons

a. Section 863 Regulations

b. Grantee's Substantive Tax Liability Under § § 871 and 881/882

c. Section 1441 Withholding Procedures

C. Foreign Investments by U.S. Charities

1. Investment in Foreign Securities

2. Investment in CFC “Blockers”

a. General Rules

b. Proposals for Legislative Change

c. Potential Effect of the 2010 HIRE Act

D. IRS and Treasury Reporting Requirements

1. Annual Reports on Forms 990, 990-EZ, 990-N, or 990-PF

a. General Requirements

b. Schedule F (Form 990 Only)

c. Form 990-PF (Private Foundations)

d. Taxable Private Foundations

2. Other IRS Returns

3. FBAR Reporting

a. Foreign Bank Accounts

b. Foreign Mutual Funds and Private Investment Partnerships

c. CFC “Blockers”

d. Signatory Authority

VII. U.S. Tax Treatment of a Foreign Charitable Organization

A. General Comments

B. Potential U.S. Tax on Non-Investment Activities

1. Foreign Public Charities that Qualify Under § 4948(b)

2. Foreign Public Charities that Do Not Qualify Under § 4948(b)

3. Foreign Private Foundations that Qualify Under § 4948(b)

4. Foreign Private Foundations that Do Not Qualify Under § 4948(b)

5. No § 1441 Withholding on Grants to Foreign Persons

6. Unrelated Business Income

a. Foreign Income

b. U.S. Income

7. Tax Treaties

C. Taxation of U.S.-Source Investment Income

1. General Comments

2. U.S.-Source FDAP

a. Realized by a Foreign Public Charity

(1) Sections 1441/1442 Withholding Exemption Procedures

(2) Tax Treaties

b. Realized by a Foreign Private Foundation

(1) Alternative Tax Regimes Under § § 881 and 4948(a)

(2) Section 1441 Withholding Exemption Procedures

(3) 4% Excise Tax Under § 4948(a)

(4) Taxation of U.S.-Source Portfolio Interest Under § 4948(a)

(5) Tax Treaties

(a) Complete Exemption from the § 4948(a) Tax

(b) Treaties that Expressly Reduce the § 4948(a) Tax on Certain Income

(c) Treaties that Impliedly Reduce the § 4948(a) Tax on Certain Income

(d) Procedure to Claim a Treaty Exemption from § 4948(a) Tax

(e) Treaty Disclosure Under § 6114

(6) Taxable Foreign Private Foundations

c. Potential Effect of the 2010 HIRE Act

d. Foreign Charitable Trusts

3. Investment in U.S. Real Estate

a. Direct Investment by a Foreign Public Charity, Where No UBIT

(1) Rental Income

(2) Gain from Sale of the Real Estate

b. Direct Investment by a Foreign Private Foundation, Where No UBIT

(1) Rental Income

(2) Gain from Sale of the Real Estate

c. UBIT Rules

4. U.S. Investment Partnerships

D. IRS Reporting Requirements

1. Foreign Public Charities

a. Foreign Public Charities that Qualify Under § 4948(b)

b. Foreign Public Charities that Do Not Qualify Under § 4948(b)

2. Foreign Private Foundations

a. Foreign Private Foundations that Qualify Under § 4948(b)

b. Foreign Private Foundations that Do Not Qualify Under § 4948(b)

c. Canadian Private Foundations

d. Foreign Taxable Private Foundations

3. Other IRS and Treasury Reporting Requirements

VIII. Miscellaneous U.S. Tax Issues

A. Charitable Remainder Trusts

B. Charitable Lead Trusts

C. Transfers to Foreign Charitable Trusts

1. Section 679 Exception

2. Section 684 Exception

3. Form 3520 Reporting

D. Debt-for-Nature Swaps

E. Charitable Contribution of Foreign Property Easements

F. U.S. Payroll Tax Obligations for Employees and Service Providers

IX. U.S. Treasury Anti-Terrorist Rules

A. Treasury Guidance for U.S. Charities on “Terrorist Abuse”

B. U.S. Supreme Court Enforcement of the Anti-Terrorist Financing Rules


WORKING PAPERS

Working Papers

Table of Worksheets

Other Relevant IRS Documents:

Worksheet 1 IRS Form 990 Tips and FAQS

Bibliography

Books and Treatises

Periodicals

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